Tweet

The Uniform Franchise Offering Circular: What Every Franchisee Needs to Know

Written by: Candice Clem

Article Overview: After months of careful thought and planning, you are poised to start your own franchise business. You’ve pinpointed your interests, narrowed your industry options, and selected the company that is your perfect match. Now, just weeks away from your own “opening day,” you find yourself handed a document of intimidating size with an equally intimidating title: Uniform Franchise Offering Circular.

The Uniform Franchise Offering Circular: What Every Franchisee Needs to Know

After months of careful thought and planning, you are poised to start your own franchise business. You’ve pinpointed your interests, narrowed your industry options, and selected the company that is your perfect match. Now, just weeks away from your own “opening day,” you find yourself handed a document of intimidating size with an equally intimidating title: Uniform Franchise Offering Circular.

What? You’re probably asking.

Just when you thought you had done all the heavy reading the law should allow, you’re faced with still more. Unlike your own research, however, this document the law actually requires. What exactly is a Uniform Offering Circular Agreement, or, as it is more commonly called, a UFOC? As you will come to see, it is not only an extremely important document for any franchisee, but it is also a vital layer of business protection that makes franchising one of the lowest-risk entrepreneurial ventures.

Entrepreneur.com defines a UFOC as “[a] regulatory document describing a franchise opportunity that prospective franchisees have to receive before they pay any money, sign any papers or, in some cases, even meet with the franchisor.” The document gives background franchise business information in over 20 categories regarding the selected franchise opportunity and provides a copy of the franchise agreement.

Although hardly a household word, the UFOC has been in existence for well over 25 years but traces its impetus back even further. During the 1960s and1970s, the franchise industry found itself beset with certain unethical behaviors that were adversely affecting those involved in the industry. In 1975, the Midwest Securities Commissioners Association presented the first UFOC. According to Entrepreneur.com, this first edition “was created in response to the disparate disclosure requirements that an increasing number of states were adopting in the early 1970s.” Eventually, all state and federal regulatory authorities adopted the UFOC. In 1979, the Federal Trade Commission (FTC) adopted the UFOC, and since that year, federal franchise law has required that franchisors provide the UFOC to prospective franchisees at least 10 days prior to the signing of the Franchise Agreement.

Specifically, the UFOC discloses franchise information in 23 different categories. This information must be current based on the franchisor’s most recent fiscal year, and if any changes have occurred since that time, the franchisor must make the information regarding these changes available to the potential franchisee in the form of a quarterly revision.

The 23 categories of the UFOC are as follows:

1. The Franchisor, Its Predecessors and Affiliates
2. Business Experience
3. Litigation
4. Bankruptcy
5. Initial Franchise Fee
6. Other Fees
7. Initial Investment
8. Restrictions on Sources of Products and Services
9. Franchisee’s Obligations
10. Financing
11. Franchisor’s Obligations
12. Territory
13. Trademarks
14. Patents, Copyrights, and Proprietary Information
15. Obligation to Participate in the Actual Operation of the Franchise Business
16. Restrictions on What the Franchisee May Sell
17. Renewal, Termination, Transfer, and Dispute Resolution
18. Public Figures
19. Earnings Claims
20. List of Franchise Outlets
21. Financial Statements
22. Contracts
23. Receipt

While covering numerous specific details, these 23 categories fall into several major areas, including history, fees and royalties, organizational management, any major legal issues or cases, franchise terms, and financial disclosure.

The history section will briefly chronicle the founding of the franchise and should include information regarding who started the franchise, any date of incorporation, and how long the company has been franchising.

Under fees and royalties should be listed in detail the franchise fee']);"> initial franchise fee as well as ongoing royalty requirements. The franchisee should note, however, that the franchise fee might not include additional start-up costs such as facility rent, inventory, and equipment.

The organizational management section will provide information regarding the executive team of the franchise. According to Entrepreneur.com, this data should allow the franchisee to obtain an idea of the professional experience of the franchise’s officers and directors as well as discover if any potential conflicts of interest exist between these individuals and the suppliers and/or vendors with whom the franchisee will be doing business.

The UFOC’s legal information categories will inform the franchisee of any major civil, criminal or bankruptcy cases in which the franchise or any of its executive officers have been involved. Entrepreneur.com notes that in today’s litigious society, the presence of past legal involvements may necessarily signal a problem, but, depending upon the nature of the litigations, they may provide good cause for further investigation by the franchisee before entering into a contract.

The franchise terms detail a wide array of vital information, including contract renewal stipulations, franchisor and franchisee obligations, territorial considerations, and dispute resolution. Franchise terms may vary widely from one franchise opportunity to another, and it is crucial that the prospective franchisee thoroughly understand and accept the terms of the franchise prior to signing a contract. It is also strongly recommended that the franchisee also have his or her attorney review the UFOC and franchise contract.

The franchisor is also required to provide financial disclosure, including financial, balance, and income statements. Some franchisors may also make available profit and earnings forecasts, although these are not always required.

Although the Uniform Franchise Offering Circular may present itself as an intimidating document, in reality it is a crucial piece of franchise business information that not only protects but also helps franchisees as they take the exciting step of starting and owning a successful franchise business.

Related Articles
  Franchise information that is pertinent to your investigation is disclosed in the Uniform Franchise Offering Circular (UFOC).
  The FTC on Earnings Claims Statements
  Franchising Strategy
  WHAT YOU NEED TO KNOW ABOUT BUYING A FRANCHISE
  What is the Franchise Ufocs Role

Article Tags:



Related Forum Posts
Protecting IP - Dear BigJim 22 Sure as long as it is in the Franchise agreement... ie wht you are offering as Francisor and what their obligations are as Franchisee It is all in the agreement........ take care Ian
How Do I Start Franchise? - How do I start a franchise? Before one can start a franchise it is important that you do your homework and research your market thoroughly so that you know what you are getting into. To start a franchise, it is vital that you: First, investigate all the franchise opportunities available to you by visiting franchise trade shows or by contacting a franchise agent. Also talk to family, friends or relatives who have set up a franchise, or who know some one who has set up a franchise. It is good to get as much information as possible from fellow franchisees, as not all franchises are good investments Second, talk to franchise owners that are in a franchise similar in to the one you would like to invest in. Ask them if they are pleased they are with their decision, and how well their business is doing. Is it meeting their expectations? Also ask questions about the franchiser and how responsive it is. It is important to determine the integrity of the franchiser you are interested in doing business with. Third, consult any and all advisers. Have an accountant review the audited financial statements the franchiser presents you with, and bring in a lawyer to help review all the legal documents before you sing them. Fourth, thoroughly read the Uniform Franchise Offering Circular, which is a disclosure document in which the franchiser must release certain information such as, any and all administrative, criminal or civil litigation currently pending or completed against the franchiser involving allegations of fraud or misrepresentation. It is a recommendation of the FTC that all franchisers supply a UFOC to prospective franchisees. Also make sure to verify and confirm the UFOC facts. Do a background check on the history and experience of the franchise and its employees. Fifth, compare other franchises. Look for franchises similar to the one you are interested in investing in, and see how well they are managed and financed. Sixth, know and be fully aware of all the terms and conditions of the purchasing contract you are about to sign. Seventh, research as much as you can. Buying a franchise is a complex process and should be approached with caution. The more information you know, the better it is for you. Remember, only you can determine if owning a particular franchise is right for you. When starting a franchise it is key that you evaluate yourself and see if a franchise is the right business investment for you. Investing in a franchise should not be taken lightly as it can be a risky business. It is important that you consider all the facts before you make a decision to invest in a franchise.
Re: Enticing Franchises - Top 9 List - All Franchise listed above are in millions of dollars. Do you have the list of Franchise in thousands
Re: Info for would be franchisers... - [quote="Sebastien":1d29sdv1]Like Franchise Times, Franchise Update is a very practical magazine. There is no blah blah, just straight facts that anyone in the franchise community can relate to. I just want to mention that all these magazines are NOT franchisee oriented. I mean these magazines are for franchise professionals. If you're looking to buy a franchise, you won't find much information in there. To answer your question, getting published in Franchise Times was fairly easy. I don't want to brag too much but I think I am known in the franchise industry. I was the marketing guy at Franchise.com for a few years before joining my new company, the World Franchising Network. So people know me and I have a very good relationship with Nancy Weingartner, the Managing Editor at Franchise Times. I was talking with her at the last Franchise Expo South in Miami and she mentioned she'd like me to be profiled. I was like "ok, sure!". I like this franchise executive profile thing in Franchise Times as it is rarely BS. People are usually really natural in there.[/quote:1d29sdv1] Thanks for the follow up Sebastien! And I can't say that I'm surprised that networking with the right people and managing your relationships with them properly are the keys to being published. I guess the old adage holds true of "it's not who you know, but who knows you" that's important.
how much for a franchise fee? - Dear Colleague There is no easy answer to this question. Things to consider: [list=] The sizeof the Franchise Clent base Expected Turnover Intellectual Property costs (recoup) Number of Franchises Number of employees Original Set up costs Franchise admin costs An example: A franchise that I was involved in setting was to a simple "lawn mowing/home repair" franchise. The Franchise included national/local advertising - preparation of client lists - general admin - central accounting etc The Franchise involved 300-500 clients - and an annual turnover of about $300,000 . The annual franchise fee was $30,000. Hope that this gives you some idea Take care Ian[/list]


Share this article with your friends. Fund someone's dream.

Leave a comment below or share on the left and you'll help support entrepreneurs in Africa through our partnership with Kiva. Over $50,000 raised and counting - Please keep sharing! Learn more.

Tweet

Newsletter

Get advice & tips from famous business
owners, new articles by entrepreneur
experts, my latest website updates, &
special sneak peaks at what's to come!

Name:
Email:

Popular Articles

Too Many Sales Reps Are Wimps

Life, Conflict and Work

Paint A Word Picture - Excite Your Customer

Suggestions

Email us your ideas on how to make our
website more valuable! Thank you Sharon
from Toronto Salsa Lessons / Classes for
your suggestions to make the newsletter
look like the website and profile younger
entrepreneurs like Jennifer Lopez.